by phil - January 4th, 2016 1:21 pm
What a crazy year 2015 was!
We began tracking this new virtual portfolio back in August and, in less than 4 months, we closed 80 option positions on 20 stocks (or ETFs) so pretty active in the beginning. At one point we were up 20% but the net gain on the positions we've closed ended up at just $9,572 or +9.5% from our $100,000 opening balance.
Since that pace was more hectic than we had intended and the market was very choppy, we moved towards longer-term investments which have the downside of being "expensive" to set up – in that the portfolio will tend to reflect the worst-case scenario for buying or selling options based on the bid/ask spread – no matter how unrealistic the pricing is. This is, however, something options players need to learn to understand when they are looking at their positions – and we'll discuss that in detail as we examine each of our open positions:
Notice first that we have $98,672 worth of cash on hand. We started with $100,000 and, using just $1,328 of our original cash, we now control a substantial amount of positions. On the margin side, we are using $48,700 out of $200,000 of ordinary margin (not Portfolio Margin, which would be much more) and, generally, we don't want to use more than 1/2 of our margin – saving the rest for emergencies.
At this stage in the process, we're not so much concerned with the BALANCE of the positions as we are to whether or not they are on or off track for their goals. Options trades can swing wildly in value as premiums fluctuate as well as the price of the underlying security – your job as an options trader is to understand the VALUE of your options so you can identify which ones are misPRICED and learn to take advantage of the differences.
- BBY – If BBY is over $31 on Jan 15th, the short puts expire worthless and we make the whole $900. As it stands, we're about 1/2 up and on track to make $450 more.
- Since we liked
by phil - December 13th, 2015 6:33 am
Still One Million Dollars!
$1,004,162.60 to be exact and that is UP $2,018 since our last Portfolio Review, back on 11/23 (right before Thanksgiving). As I said at the time, +66% was our 3-year goal for our primary, paired portfolios (we began with $600,000). Since we hit that target before the end of year two and into what we thought would be a tumultuous holiday period - locking ourselves into a protective, neutral position seemed prudent – especially as, on the whole, I'd rather be in CASH!!!
Unfortunately, CASH!!! is not a very popular position and I bowed to the will of our Members and kept the virtual portfolios running, rather than cashing in in August. Frankly, I don't think I would have done any better from a cash position since August anyway as I've been too gung-ho bullish on Natural Gas (/NG) and too bearish on the FANG stocks – or at least Amazone (AMZN) and Netflix (NFLX) – both of which are bearish plays in our STP and LTP that are hurting us.
So there's certainly something to be said for having a well-diversified and well-hedged portfolio strategy and we do have PLENTY of cash in our portfolios (almost 90%, in fact) but, more importantly, we're using quite a bit of margin now – so we're not as flexible as it seems (using ordinary margin – not portfolio margin, which would have tons of room). That's because, especially in the LTP, we rely on short put sales to generate a steady supply of cash but, when the whole market goes down at once – the margins can get stretched and we lose some flexibility.
We're prepared to see 1,850 tested on the S&P but much lower than that and we're going to have to start covering some positions. That money, if needed, would come out of the Short-Term Portfolio (STP) which gained $31,742 in the past few weeks while the Long-Term Portfolio (LTP) lost $32,031 – as it's amost entirely full of bullish positions.
by phil - November 23rd, 2015 6:13 am
One Million Dollars!
That's up 66% on our main, paired portflios as we approach our 2-year anniversary. 66% is our 3-year goal for the Long-Term and Short-Term Portfolio strategy so of course we decided to lock in our gains after having a rough ride in September, when the LTP balance fell as low as +26% on September's dip to S&P 1,870. That led us, in our last review, to add another $50,000 worth of downside protection in the STP and it worked perfectly, as the October dip barely touched us.
Well, not PERFECTLY, our net balance on the Long and Short-Term portfolios has dropped from $1,020,881.30 to $1,002,144.60 – down $18,736.70 (1.8%) for the month. As I noted in our Chat Room, we did add ABX, ARO, BHI, BRCM, COH, IRBT, RIG, UNG and YHOO trades since our last review so we're hardly sitting on our hands – just playing the market cautiously in the final quarter since we're so far ahead in the game.
Unfortunately, like all prevent defenses, you end up giving back a little ground in the interest of preserving the greater victory. Of course, that doesn't stop us from having plenty of other trade ideas – they just weren't added to our tracking portflios yet.
AAPL, for instance was featured as it dropped back below $115 and IBM was officially announced as our trade of the year as it plunged to $130 and it's already begun to recover. At our Butterfly Portfolio Seminar in Washington last week, we went over 20 stocks we'll be watching in 2016 but mostly AFTER we get through the holidays intact!
It can be hard to sit on the sidelines in cash – especially when we've had such fun increasing our cash piles all year long. However, as I mentioned above, we had a $115,000 swing in the LTP in Sept and, despite making some offsetting gains in the STP to compensate – that was a little more variation than I was comfortable with. We did, in fact, go on a buying spree at the Aug dip…
by phil - November 8th, 2015 9:58 am
We are right on target.
At the end of our 3rd month, our 5% Portfolio (now called the Options Opportunity Portfolio) is right on target with an overall portfolio balance of $115,538, which is up 15.5% from our August 8th starting date. Even more impressive is the $26,521 (26.5%) we've made on the positions we've closed so far and we've re-invested some of those profits into new, aggressive long-term positions that we feel will bring us further net gains down the road.
The 5% (Monthly) Portfolio is a project we have been running with Seeking Alpha for readers who were interested in learning various option trading techniques that could generate a monthly income in a virtual tracking portfolio. The name was changed to the Options Opportunity Portfolio, which is also descriptive but our goal remains using a $100,000 Portfolio with ordinary margin to generate $5,000 in monthly income. As you can see, our current open positions are using just $13,000 in margin and we have $84,743 in cash, reflecting our very cautious stance in the current market environment.
Another huge educational point we are trying to make here is that you don't have to risk a lot to get great returns. Here is a rundown of all the positions we've closed to date – about 17 different stocks and ETFs we've identified over the same amount of weeks – not a very active portfolio but not one for passive traders either (and that reminds me that our Butterfly Portfolio Seminar will be next week in Washington DC!).
It should be noted that our biggest winning position that we've closed, SQQQ (+$9,351), is also our biggest open loss that we haven't closed (-$8,050) and that's the focus of today's lesson. SQQQ is an ultra-short Nasdaq ETF that moves 3 times the inverse to QQQ. We use it as a hedge, as insurance, to protect our long-term positions and, like any insurance policy – we kind of hope it never pays off!
by phil - October 18th, 2015 10:04 pm
We discussed our strategies in Part 1.
This is Part 2 and it's a Member's only view of the 4 virtual portfolios we track for our Members. We already did these reviews Live in our Member Chat Room – this is just a consolidation of the updates for reference purposes. Our Member Portfolios are:
- Option Opportunities Portfolio – OOP ($100,000 base): This is a self-contained portfolio that is also published at Seeking Alpha and looks for short-term opportunities to make money off of news or events using various option strategies. Our goal here is to teach how to trade with options as well as how to identify events that cause price mismatches we are able to take advantag of.
- Butterfly Portfolio – ($100,000 base): Our most stable portfolio, using what are really mainly double-diagonal calendar spreads to create low-risk, self-hedging positons that emphasize our "Be the House – NOT the Gambler" strategy for premium selling. It's a low-touch portfolio, requiring monthly maintennance.
- Short-Term Portfolio – STP ($100,000 base): The first part of our main paired portfolios. The STP's primary purpose is to protect the bullish LTP but, since that's not a full-time job, we also make opportunity-type plays when they present themselves. As there is usually plenty of margin laying around, we also make fairly complex earnings plays that would not be appropriate for stand-along $100K portfolios.
- Long-Term Portfolio – LTP ($500,000 base): This is our main strategy for long-term investing which follows our "Planting Trees" model. We INTEND to build long-term positions with very low bais BUT in a very bullish market, we end up cashing out when our positions trend far above our expectations. This portfolio, by itself is very volatile, as the hedges are in the STP while the vast majority of our LTP positions are bullish and also a low-touch portfolio.
Short-Term Portfolio (STP) still isn't bearish enough as it's only down $8,000 while the LTP is up $15,000 for the week so let's see how we can tilt a bit more bearish into the weekend!
by phil - October 17th, 2015 8:29 am
One Million Dollars!
That seemed like a lot just two weeks ago, when we did our September Portfolio Review but, as I said at the time, though mainly in cash, we had kept a very bullish set of "losing" position in the Long-Term Portfolio (LTP) as we expected the next stage of the up cycle to include our beaten down oil and materials stocks.
Boy did we nail that one! In just two weeks, our paired Short-Term Portfolio (STP) and LTP combo have gained $91,154 to bring our combined total to $1,112,035.60 – a new high and up 85% since our Thanksgiving, 2013 start date. Much more impressive though, than making 85% in two years, is making another 9.1% in two weeks!
We didn't do anything fancy, these are essentially the same positions we featured in our last Portfolio Review – we simply left them alone to do their thing – as we should be doing with our long-term plays. The key to our success was sticking with our strategy and our strategy included:
- Taking our winners off the table when we felt the market was getting toppy
- Evaluating all of our remaining positions
- Cutting the positions we no longer had faith in
- Adding to or adjusting the positions that remained to maximize their profit potential
Our paired portfolio strategy essentially forces us to buy low and sell high. By scaling into a diversified group of positions, including a healthy amount of market shorts at any given time – it's virtually impossible for at least some of our positions not to be winning in almost any market conditions. Then we simply cash in our winner and use that money to scale into our "losers" – if we believe they are only victims of a cycle moving against them – as opposed to having fundamentally lost something since our original investment.
Usually, we don't run our virtual portfolios for more than a year because people like to feel they are starting fresh but, two years ago, I decided we need to make a point about our Long-Term Investing Strategy (see "The Man Who Planted Trees" for details). We discussed our…
by phil - October 10th, 2015 8:09 am
How interesting the markets have been.
In our August Top Trade Review, I mentioned we were starting a new product, which began as the 5% Portfolio and was renamed the Options Opportunity Portfolio, which has been a huge success, now up 16.7% at the close if the second month:
These are, for the most part, short-term trades but we've been layering in some longer-term trade ideas – using our profits to invest in trades that will generate steady monthly gains over time, rather than only focusing on "quickies".
Our Top Trade Ideas, generally, tend to be longer-term trades and we don't have a portfolio that tracks them specifically. They are generally selected trades from the ones that we are adding to PSW's Short-Term Portfolio or Long-Term Portfolio and tend to be of the "set and forget" variety, while our OOP trades require a bit more active management.
While 30 of our first 45 (66%) Top Trade ideas were winners, 4 of our 15 losers were Lumber Liquidators (LL) trade ideas – all of which are now coming back as LL pops back to $20! Hopefully it can break over $20 and we can put all that silliness behind us.
Getting two out of three trades right is plenty to move the investing ball towards the goal line. Combine that with sensible portfolio management techniques (diversification, managing losses, hedging) and you'll beat the S&P by a mile with no sweat. Generally, with our Top Trades, we're simply picking stocks we feel are underpriced and we're using our various options techniques to give ourselves even better discounts and hedged entries but these are patience plays – that do take time to get going, though we did call for a cash-out of our winners in July, so August was kind of a fresh start.
Without further ado, here's the next month of trades for review – some are still good for new entries:
by phil - October 5th, 2015 6:09 pm
When do you call it "too much profits?"
We just did a review this weekend and decided we liked our 12 bullish positions and 1 bearish hedge enough to stick with them without making any changes and today you can see why. Our Options Opportunities Portfolio jumped from $107,152 to $114,302 – gaining $7,150 (7.1%) in a single session. These are good companies, folks – that's why we bought them!
Unfortunately, as much as we like them, we have to be realistic about whether or not they can sustain moves like this. After all, the goal of the OOP is simply to gain 5% each month using as little of our $100,000 base as possible – gaining 7% in a day is a bit over the top! Let's take a quick look at how we got from there to here and see if we need to make any other changes. Also, we had a few new subscribers today – so I want to make sure they know which are our favorite positions and why.
On Friday, we closed looking like this:
Today, we cashed in the main part of our MU spread with a nice profit and we invested that money to pay for a more aggressive hedge with our SQQQ position. It's a good practice to always use some of the money you make on the way up to hedge for the way down – just in case:
See how easy that was? Still $7,150 in a day is a bit ridiculous and indicates we're a bit too aggressively bullish so we need to look at our positions and see if there's some we want to take off the table or protect. Cash-wise, we have the same $97,000(ish) we started with but now it's only 85% of the portfolio vs 90% of our portfolio on Friday. Not a big difference – but we don't really trust the markets enough to have too many open positions.
I did extensive commentary in the weekend post, this is just a quick review after today's big move:
- BID – We love this one and they barely
by phil - October 4th, 2015 8:33 am
One Million Dollars!
Actually $1,020,881.30 to be exact. That's the balance of our paired Short-Term and Long-Term Portfolios, up $420,881.30 (70%) in 7 quarters. Overall, our larger, Long-Term Portfolio has been performing at a predictable 31.2%, as our goal on those plays is to make 15-20% per year and it's been our Short-Term Portfolio that has outperformed, thanks in large part to long bets on AAPL and short bets on oil as well as a whole lot of well-timed hedges along the way.
By far, our best performing virtual portfolio is our STP, which is currently up 261.6% at $361,645.90 and, most importantly, it's very much in cash with $325,736 of it on the sidelines and only 10 open positions as we chose to sit out the market chop – for the most part. Keep in mind the main function of our Short-Term Portfolio is to protect the LTP and most of our LTP positions are self-hedging (short puts mainly) at the moment – so they simply don't need a great deal of protecting.
We've been putting a lot of our short-term trading power into our brand new Option Opportunities Portfolio, which I just wrote a separate review on, those are trades that would otherwise have gone into our STP, where we generally look for bearish offsets to our LTP while we also like to grab good trading opportunities as they come along.
There have been a lot of questions about access to our trade ideas lately and, to clarify, ALL trade ideas start out in our PSW Member Chat Room, which you can sign up for here as eiter a Trend Watcher Member (view Basic Chat only) or a Live Chat Member, where you can join in the conversation during the trading day. Premium Chat Memberships are currently wait-listed.
As of Friday's close, our Short-Term Portfolio (STP) was 90% in cash with these remaining open positions:
- FAS – We were HOPING Yellen could do more for us so we can begin rebuilding our FAS Money trade at a higher price but this thing died and stayed dead so far. We already made our money so it's like a
by phil - October 3rd, 2015 12:45 pm
It's actually only been 56 days but close enough.
So far, we've only had to close 10 positions (average of about one per week) for a $13,255 gain, which is 13.25% of the portfolio's $100,000 base. Our original goal was to try to make $5,000 a month, so we're well on track so far. It's been a choppy, nasty market and we've spent the last two weeks protecting our long positions more so than trying to add new ones.
The goal of our Options Opportunity Portfolio, is to take advantage of short-term OPPORTUNITIES in the market using options for both hedging and leverage. Overall our goal remains closing about $5,000 a month in profits, some of which we roll over into longer-term positions that will being paying us steady incomes as they mature.
The only new positions we added this week were Micron (MU), which had a wonderful day on Friday after earnings and finished at $15.91, well over the $15.50 target we need to make 72% on that trade. To protect our very quick gains, we also added a Jan $25/30 bull call spread on the ultra-short Nasdaq ETF (SQQQ) at $1,600, which pays $5,000 should the Nasdaq slips – so that's $3,400 of downside added against our open positions. Once you have profits, you also have a responsibility to protect them!
Before we Review our open positions, here's a quick look at the ones we've closed:
Our biggest loser, BID, is still a working, open position. We have 20 of the April $32s still open at $4.30 and we're down $2,600 so that's $1.30 per contract which means we neet to be $5.60 above our $32 strike by April option expirations (15th). The purpose of these reviews (and it's a habit you should have for all your positions) is to decide whether we are on or off track on our open items and to make adjustments were we're not on track.